In the press

Unregulated gaming: is the noose closing?

This article was first published in EGR Compliance, October 2018.

Unregulated gaming covers a wide remit of products, including esports, fantasy sports, house raffles, social casinos, prize competitions and many more constructions to bring them outside the legal definition of gambling, comprising games of chance, betting and lotteries. The advantages of being outside the regulatory net are substantial in the form of reduced costs, no gaming duty and freedom from regulatory compliance.

In some jurisdictions, unregulated gaming has arisen by default, given prohibitions against legal gambling equivalents, i.e. fantasy sports in the US. This has helped drive rapid expansion in this sector. Despite the obvious benefits of unregulated gaming, there are many draw¬backs, such as the necessity in many jurisdictions to impose a sufficient level of skill to keep it outside the definition of a game of chance or lottery. This can force house raffles and prize competitions to be either complex, thereby deterring participation, or to forego any form of entry fee.

Where activity centres around betting on the outcome of an event as may happen in esports and fantasy sports, then money or money’s worth cannot be used, and instead there may be use of non-exchangeable virtual currencies. Furthermore, organisers will need to ensure that in-game items, or skins, are not used in their offering or linked sites as a betting currency. The FutGalaxy case demonstrates the UK Gambling Commission’s aggressive enforcement policy against the use of skins for betting.

Open the box

A lot of bad press has also been directed at the use of loot boxes in video gaming, which are awarded or purchased during the game to give a random benefit. The mechanics of loot boxes, which rely on an RNO, introduce an element of chance and therefore may be viewed as a regulated activity. However, the real issue with loot boxes and skins is the fact that they are often purchased by the children who form the bulk of customers, which has led to many reported cases of ‘problem video gaming’ and many disgruntled parents burdened with large credit card bills.

Many countries are already cracking down on this activity. Indeed, the vulnerability of children to unregulated gaming is a huge concern to a lot of regulators. The Gambling Regulators European Forum, composed of 15 European regulators, together with the Washington State Gambling Commission, issued a declaration in September voicing their concerns related to the blurring of lines between gambling and gaming.

There are also more practical and commercial restrictions around unregulated gaming. This includes the potential imposition of European point of consumption VAT on products coming within the ‘eservices’ definition; game and betting integrity issues, with no regulatory standards and measures to prevent match fixing or software tampering; the challenge of making unregulated games commercially viable given restrictions around entry fees, real-money betting and required levels of skill reducing the pool of winners; and banks’ reluctance to open accounts and lend money where there is a vagueness over legal standing.

The noose will continue to close on unregulated gaming, unless there are strict self-imposed standards, something difficult to accomplish in such a fragmented space. Some jurisdictions have created new skill games regulations. This brings certainty to operators and comfort to customers, and it may be a way forward for the industry to grow sustainably within an appropriate regulatory framework.

Contact the Author

I have over 20 years of experience in betting & gaming, regulation & compliance, intellectual property and commercial contracts. Prior to joining Gordon Dadds regulatory solutions team in 2017, I was General Counsel & Chief Compliance Officer at Mansion Group for 10 years.
My key specialisms are gambling law and regulation, compliance, governance and risk management, AML policies and procedures, IT contracts and technology licensing, entertainment and media contracts and copyright licensing, sports sponsorship agreements, ecommerce and internet law.
I am a member of IMGL (International Masters of Gaming Law), GBGA (Gibraltar Betting & Gaming Association) and ICA (International Compliance Association).